SHAREHOLDER RIGHTS DIRECTIVE II

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In response to the 2008 global financial crisis, the European Commission proposed in April 2014 a revision of the original 2007 Shareholder Rights Directive in 2014. The revised Shareholder Rights Directive (“SRD II”), which took effect in June 2017, seeks to reinforce effective and long-term shareholder engagement and monitoring of company performance. Both elements were lacking during the crisis when many companies took on excessive risks in the pursuit of short-term returns. EU member states were called upon to amend their laws to comply with SRD II by June 10, 2019. As of Feb. 26, 2020, 20 EU member states had implemented SRD II into their local legislations.

KEY NEW REQUIREMENTS OF SRD II

The directive is subdivided into three main chapters.

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VOTING CHAIN

  • Companies should have access to the identity of shareholders without delay.
  • Transmission of information that enables the exercise of shareholder rights should be made in electronic and machine-readable formats.
  • Intermediaries are required to facilitate the exercise of shareholder rights including confirmation that shareholder votes were recorded and counted accurately.
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TRANSPARENCY

  • Engagement policies of institutional investors and asset managers.
  • How shareholder engagement is integrated into investment strategy including how voting rights were exercised.
  • Institutional investors’ investment strategies and arrangement with asset managers.
  • Proxy advisors shall disclose a reference to the code of conduct they apply and report on the application of that code.
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REMUNERATION & RPTs

  • Shareholders will have the right to express their views on executive pay.
  • Separate votes on the remuneration report and remuneration policy.
  • The European Commission will provide non-binding guidance about the presentation of the remuneration report.
  • Rules on transparency and approval process of related-party transactions.

SRD II Implementation into EU Legislation

SRD II determines rules for the identification of shareholders, transmission of information between companies and shareholders, and facilitation the exercise of shareholder rights. New regulation grants companies the right to information identifying their shareholders from intermediaries. The minimum threshold for identification of shareholders by companies was set at 0.5 percent. The directive also obliges intermediaries to transmit information from companies to shareholders to enable shareholders to exercise rights deriving from their shares.

In line with SRD II, institutional investors and asset managers are required to disclose their engagement policies annually, and proxy advisors are obliged to publish on their websites a reference to a code of conduct which they apply and reports on the application of that code.

In addition, SRD II specifies the requirements concerning shareholder approval of remuneration for members of management and supervisory bodies in all publicly-listed companies. Shareholders are granted the right to vote on the remuneration policy (forward-looking approval) and the remuneration report (backward-looking vote). Each EU member state can choose whether these votes will be binding or advisory.

Finally, SRD II also provides for shareholder approval of related-party transactions during the general meeting, except for related-party transactions concluded in the ordinary course of business and under normal market conditions.

SRD II TIMELINE

JUL 2007

SRD I is published and enters into force

AUG 2009

Deadline for implementation of SRD I

MAR 2017

European parliament approves SRD II

SEP 2018

Commission Implementing Regulation enters into force

JUN 2019

Deadline for transposition of the Directive into local legislation

SEP 2020

Deadline for Implementation of the Directive

DATA. ANALYTICS. INSIGHT.

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